Q1 2024 Pool Corp Earnings Call

Operator: Good day, and welcome to the Pool Corporation first quarter 2024 conference call. All participants will be in listen-only mode.

Good day and welcome to the Pool Corporation first quarter 'twenty 'twenty four conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. (Inaudible) You may press star, then 1 on your touchtone.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

Operator: To withdraw your question, please press the star then. Please note, this event is being recorded. I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Melanie Hart, Vice President and Chief Financial Officer. Please go ahead.

Melanie M. Housey Hart: Thank you and welcome to our first quarter 2024 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2024 and future periods. However, actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results is discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments.

Melanie M. Housey Hart: Thank you and welcome to our first quarter 2024 earnings Conference call.

Melanie M. Housey Hart: A discussion comments and responses to questions. Today may include forward looking statements, including management's outlook for 2024 and future periods actual results may differ materially from those discussed today.

Melanie M. Housey Hart: Formation regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K.

In addition, we may make references to non-GAAP financial measures in our comments.

Melanie M. Housey Hart: A description and reconciliation of our non-GAAP financial measures included in our press release are posted on our corporate website in the Investor Relations section. In order to assist our investors and analysts in following along with our earnings call comments, we have posted a brief presentation on our investor website. It will summarize key points from our press release and call comments. We are now ready to begin the call with comments from Pete Arvan, our President and CEO. Thank you, Melanie, and good morning to everyone on the call.

Melanie M. Housey Hart: A description and reconciliation of our non-GAAP financial measure included in our press release are posted to our corporate website in the Investor Relations section.

Melanie M. Housey Hart: In order to assist our investors and analysts and following along with our earnings call comments, we have posted a brief presentation on our investor website. It will summarize key points from our press release and call comments.

Melanie M. Housey Hart: We are now ready to begin the call with comments from Pete are then our president and CEO.

Pete: Thank you Melanie and good morning to everyone on the call.

Peter D. Arvan: We released our first quarter results this morning, reporting $1.1 billion in net sales, our fourth consecutive year of achieving the $1 billion mark in a seasonally slower quarter. This was down 7% from the previous year, but up 6% from 2021. Overall demand for pool-related maintenance products in the quarter was solid, with sales ending roughly flat, which is a good result considering the poor weather that we experienced in Florida for almost the entire quarter. As you can imagine, in the first quarter, Florida is our largest market.

Pete: We released our first quarter results. This morning reporting $1 $1 billion in net sales our fourth consecutive year of achieving the $1 billion mark in a seasonally slower quarter.

Pete: This was down 7% from the previous year, but up 6% from 2021 overall demand for coal related maintenance products in the quarter with solid sales ending roughly flat, which is good which is a good result, considering the poor weather that we experienced in Florida for almost the entire quarter.

Pete: Imagine in the first quarter, Florida is our largest market.

Peter D. Arvan: We were also pleased with early buy activity, much of which we attribute to share gain given the return to a more normal supply chain condition. On the new construction side of our business, a continuation of economic uncertainty combined with elevated interest rates further weighed heavily on new pool starts. Our builders are reporting that consumers remain interested in pools, but as we have noted previously, lower-end pools remain a challenge, while demand for higher-end pools is steady, explaining the increased permit value on a per-pool basis.

Pete: We were also pleased with early buy activity much of which we attribute to share gains given the return to a more normal supply chain conditions.

Pete: On the new construction side of our business the continuation of economic uncertainty combined with elevated interest rates further weighed heavily on new pool starts.

Pete: Our builders are reporting that consumers remain interested in pools.

Pete: As we have noted previously lower end pools remain a challenge, while demand or higher and steady <unk>.

Pete: Fighting the increased permit value on a pool basis.

Peter D. Arvan: Overall, we saw permits down 15 to 20% for the quarter, which is more than we anticipated for the year. However, we believe that easier comps and signs of the bottom of the trough that we are seeing in some markets will allow the full-year construction level to be more in line with our previously stated full-year expectation of flat to down 10%. We have seen similar results in the first quarter for renovation and remodel, but our builders are telling us that interest from consumers may be starting to rebound in key markets. Normally, we would expect it to take 60 days from the time we see permits improve to any meaningful change in purchase trends from the customer base in the affected areas.

Pete: Overall, we saw permits down 15% to 20% for the quarter, which is more than we anticipated for the year, we believe that easier comps and science at the bottom of the trough that we're seeing in some markets will allow the full year construction level to be more in line with our previously stated full year expectation of flat to down 10%.

Pete: We have seen similar results in the first quarter on renovation and remodel, but our builders are telling us that interest from consumers may be starting to rebound in key markets.

Pete: Normally we would expect it to take 60 days from the time, we see permits improved to any meaningful change in purchase trends from the customer base in the affected areas.

Peter D. Arvan: Keep in mind that historically, the first quarter has represented just under one-fifth of our total annual sales in a typical year. With the all-important second quarter ahead of us, our teams remain keyed into the start of the swimming pool season with their ability to fulfill demand needs better than anyone in the industry in any environment. We all remain intensely focused on providing our best-in-class customer experience, expanding our integrated network, and enhancing our industry-leading technology solutions.

Pete: Keep in mind that historically the first quarter has represented just under one fifth of our total annual sales in a typical year with the all important second quarter ahead of US our teams remain keyed into the start of the swimming pool season with their ability to fulfill demand needs better than anyone in the industry in any environment.

Pete: We all remain intensely focused on providing our best in class customer experience, expanding our integrated network and enhancing our industry leading technology solutions.

Peter D. Arvan: Looking at our sales by major geographic market, sales declined 9% each in Florida, Arizona, and Texas, while California sales declined 4%, showing overall sequential improvements from the fourth quarter of 2023. As we mentioned on our year-end call, we saw a lot of rain in January and February in key markets. While March weather somewhat improved, it still carried above-average rain in many areas.

Pete: Looking at our sales by major geographic market sales declined 9%, each in Florida, Arizona, and Texas, While California sales declined 4% showing overall sequential improvements from the fourth quarter of 2023, as we mentioned on our year end call. We saw a lot of rain in January and February in key markets.

Pete: While March weather somewhat improved it still carried above average rain in many areas for the first quarter last year, we estimated approximately 60, approximately $60 million to $70 million impact from unfavorable weather, particularly in the Western U S. We clearly see the weather recovery in California's first quarter results, which outperformed the other areas.

Peter D. Arvan: For the first quarter last year, we estimated approximately 60 to $70 million impact from unfavorable weather, particularly in the western U.S. We clearly see the weather recovery in California's first quarter results, which outperformed other areas in the country. Conversely, in markets that experienced unfavorable weather comparisons this year, such as Florida and the southeast region of the U.S., we observed sales headwinds due to the limited ability of pools and outdoor living activities to jump off to a robust start or continue usage in the year-round market.

Pete: The country, Conversely, and markets that experienced unfavorable weather comparisons this year, such as Florida, and the southeast region of the U S. We observed sales headwinds due to the limited ability for pool and outdoor living activity to jump off to a robust start or continue usage in the year round markets.

Peter D. Arvan: Across the company, we participate in numerous trade shows and partner with our suppliers and customers to prepare for the season. From what we are hearing, there has been some consolidation amongst builders, and some newer builders are leaving due to the challenging construction environment.

Pete: Across the company, we participate in numerous tradeshows and partner with our suppliers and customers to prepare for the season from what we're hearing there are there has been some consolidation amongst builders. Some newer builders are exiting due to the challenging construction environment. This is resulting in some of our larger builders gaining share as you would.

Peter D. Arvan: This is resulting in some of our larger builders gaining share, as you would expect. Typically, the newer builders were more heavily focused on entry-level pools, which, as we have said, have been the most pressured. Related to our product sales mix, chemical sales were essentially flat for the quarter, 1% in volume with a 2% deflationary impact on price, primarily from triclore and commodities. This result reinforces our expectation that maintenance volumes will perform well, even with the weather patterns and the industry conditions that were not ideal in many markets.

Pete: <unk> typically the newer builders were more heavily focused on entry level pools, which as we have said have been the most pressured.

Pete: Related to our product sales mix chemical sales were essentially flat for the quarter up 1% in volume with a 2% deflationary impact on price primarily from Tricor and commodities.

Pete: This result, reinforces our expectation that maintenance volumes will perform well, even with weather patterns and the industry conditions that were not ideal in many markets.

Peter D. Arvan: With a slow start, we did see instances of lower selling prices on trichlor, around 5% lower than at the end of the year. At the current cost positions, we see these occurrences as minor top line pressure for the remainder of the year. Building material sales were down 11% versus the prior year following the declining trend in new cool construction and deflationary impacts across several categories as freight costs passed down from manufacturers decreased.

Pete: We had a slow start we did see instances of lower selling prices on tricolore around 5% lower than at the end of the year at the current cost positions. We see these occurrences as minor topline pressure for the remainder of the year.

Pete: Building materials sales were down 11% versus prior year following the declining trend in nuclear construction and deflationary impacts across several categories as freight cost passed down from the manufacturers have decreased.

Peter D. Arvan: Although the number of new pools is down, our superior value proposition and extensive NPT network allow us to continue to expand our share in the strategic product category. Equipment sales showed an improved trend, decreasing 3% for the quarter versus the 9% decline in the fourth quarter of 2023, and showed some early signs of recovery in discretionary product demand, like heaters and lights. Looking across the major equipment categories, we see that despite a slow start to the pool construction season, our sales transfer equipment seemed much healthier than new construction alone would dictate.

Pete: Although the number of new pools is down our superior value proposition and extensive MPT network allow us to continue to expand our share in this strategic product category.

Pete: Equipment sales showed an improved trend decreasing 3% for the quarter versus the 9% decline in the fourth quarter of 2023 and showed some early signs of recovery and discretionary product demand like heaters and lights.

Pete: Looking across the major equipment categories, we see that despite a slow start to the pool construction season, our sales transfer equipment has seen much healthier than what new construction alone would dictate.

Peter D. Arvan: Looking at our end markets, our commercial business sales came in flat compared to last year's 12% growth in the first quarter and better than the overall business as we further integrate our recent investments in our widespread distribution network and enhance our service to commercial pool operators. Sales to our independent retail customers declined 4% in the first quarter, improving from an 8% decline in the fourth quarter of 2023, as we extended our reach and resources available to these customers. For our pinch-a-penny franchisee group, sales came in flat for the quarter.

Pete: Looking at our end markets, our commercial business sales came in flat compared to last year's 12% growth in the first quarter and better than the overall business as we further integrate our recent investments in our widespread distribution network and enhance our service to commercial pool operators sale.

Pete: Sales to our independent retail customers declined 4% in the first quarter improving from an 8% decline in the fourth quarter of 2023 as.

Pete: As we extend our reach and resources available to these customers.

Pete: Or are Pinchpenny franchisee group sales came in flat for the quarter collectively these results provide additional indication that maintenance remained stable and that our focused efforts in this critical area of the market support our ability to continue to gain share.

Peter D. Arvan: Collectively, these results provide additional indication that maintenance remains stable and that our focused efforts in this critical area of the market support our ability to continue to gain share. In Europe, challenging weather and continued geopolitical uncertainty constrained sales in the first quarter, which declined 17% in local currency and 16% in U.S. dollars. We completed important supply chain projects at the beginning of the year that will position us well in improving our overall product costs and fulfillment as we work to gain scale in Europe. For Horizon, net sales declined 6% in the quarter.

Pete: In Europe challenging weather and continued geopolitical uncertainty constrained sales in the first quarter, which declined 17% in local currency and 16% in U S dollars.

Pete: We completed important supply chain projects at the beginning of the year that will position us well in improving our overall product cost and fulfillment as we work to gain scale in Europe.

Pete: For Horizon net sales declined 6% in the quarter, our irrigation business is more impacted by commodity pricing than the swimming pool business and the growth in our commercial irrigation.

Peter D. Arvan: Our irrigation business is more impacted by commodity pricing than the swimming pool business, and the growth in our commercial irrigation continues to support our distribution business during the first quarter. Gross margins came in at 30.2 percent versus 30.6 percent in the first quarter of 2023. Going into the quarter, we expected about a 60 basis point headwind compared to last year, primarily related to the sell-through of lower cost inventory in the first quarter of 2023.

Pete: To support our distribution business during the first quarter.

Pete: Gross margins came in at 32% versus the 36% in the first quarter of 2023.

Pete: Going into the quarter and we expected about a 60 basis point headwind compared to last year, primarily related to the sell through of lower cost inventory in the first quarter of 2023, Bellini Who'll walk you through the various components impacting margins as part of her financial comments Terry.

Peter D. Arvan: Melanie will walk you through the various components impacting margins as part of her financial commentary. Both our field and support teams did a good job managing expenses, as operating expenses increased just two and a half percent in the first quarter. As we discussed in our fourth-quarter call, we have several key areas where we continue to invest this year, including our technology initiatives, customer experience enhancements, and continued footprint expansion. At the same time, we continue to work on capacity creation. In mid-February, we launched our Pool 360 service platform.

Bellini: Both our field and support teams did a good job managing expenses as the operating expenses increased just two 5% in the first quarter as we discussed on our fourth quarter call. We have several key areas, where we continue to invest this year, including our technology initiatives customer experience enhancements and continued footprint expansion at the same time.

Pete: We continue to work on capacity creation.

Pete: Okay.

Pete: In mid February we launched our pool of 360 service platform at our Investor Day I was excited for my team to provide a deep dive into this innovative tool and demonstrate the power that our customers will see from using the full 360 ecosystem, our technology and sales teams were on the ground doing exactly that during the quarter for both our customers and our field team.

Peter D. Arvan: At our investor day, I was excited for my team to provide a deep dive into this innovative tool and demonstrate the power that our customers will see from using the Pool 360 ecosystem. Our technology and sales teams were on the ground doing exactly that during the quarter for both our customers and our field teams in preparation for this season. Orders processed through our traditional B2B Pool 360 platform continue to expand at close to 11% of total sales in the first quarter of 2024, growing from 10% in the first quarter of last year.

Pete: In preparation for the season.

Pete: Orders processed through our traditional BW equaled 360 platform.

Pete: We need to expand at close to 11% of total sales in the first quarter of 2024 growing from 10% in the first quarter of last year.

Peter D. Arvan: Related to our Pool 360 water test, we finished the first quarter with two and a half times the number of customers on board than at the end of 2023, and this translates into a similar increase in water tests performed versus the fourth quarter of 2023. Our analysis of customer buying behavior confirms our assumptions of the power of Pool 360 Water Test, with our Pool 360 Water Test customers' private label chemical purchases up significantly versus the rest of the customer base.

Pete: Related to our full 360 water tests, we finished the first quarter with two five times the number of customers on board and at the end of 2023 and this is translated into a similar increase in water tests performed versus the fourth quarter of 2023.

Pete: Our analysis of customer buying behavior confirms our assumptions of the power of <unk> hundred 60 water test with our full 360 water test customers private label chemical purchases up significantly versus the rest of the customer base. While in the very early stages. We are already beginning to see the positive impacts of our full 360 service tool.

Peter D. Arvan: While in the very early stages, we are already beginning to see the positive impacts of our Pool 360 service tool through volume growth in our private label chemical brands and revenue dollar growth in other products. Our customers are reporting very favorable feedback on the ecosystem and all it provides, driving adoption of our Pool 360 service application. Pool 360 not only provides a meaningful differentiator and deeper relationships with our customers but also adds capacity for our customers to grow their business, which we believe will drive additional growth for Pool Corp.

Pete: Through volume growth in our private label chemical brands on revenue dollar growth in other products. Our customers are reporting very favorable feedback on the ecosystem and all it provides.

Pete: Driving adoption of our <unk> 360 service application not only provides a meaningful differentiator and deeper relationships with our customers, but also adds capacity for our customers to grow their business, which we believe will drive additional growth for goldcorp.

Pete: The progress among these tools reflects the collaborative efforts of our sales field and technology teams to rollout the new software and educate our customers and teams on this enhanced abilities.

Pete: We continue to expand our network opening three new locations in the first quarter and acquiring one bringing the total sales center network to 442 locations are Pinchpenny franchise network added five new stores, including two as part of our focus expansion in the Texas market ended the quarter with a total of 290 franchise.

Peter D. Arvan: The progress among these tools reflects the collaborative efforts of our sales field and technology teams to roll out the new software and educate our customers and teams on this enhanced ability. We continue to expand our network, opening three new locations in the first quarter and acquiring one, bringing the total sales center network to 442 locations. Our pinch-a-penny franchise network added five new stores, including two as part of our Focus expansion in the Texas market, ending the quarter with a total of 290 franchise locations.

Pete: Patients continuing to expand our franchise footprint geographically in our retail edge program are critical elements of our strategy to reach the attractive do it yourself maintenance market.

Pete: We recorded $108 7 million and operating income in the first quarter of 2020 for operating margins of nine 7% decline when compared to the 12, 1% in the first quarter of 2023, but well exceed the pre pandemic first quarter operating margins.

Peter D. Arvan: Continuing to expand our franchise footprint geographically and our retail edge programs are critical elements of our strategy to reach the attractive do-it-yourself maintenance market. We recorded $108.7 million in operating income in the first quarter of 2024; operating margins of 9.7% declined when compared to the 12.1% in the first quarter of 2023 but well exceed the pre-pandemic first quarter operating margins, that ranged from 5.7% to 6.5%. Our increase in scale since that time shows the immense leverage attainable from top-line growth, focused cost management, and disciplined execution.

Pete: It ranged from five 7% to six 5%.

Pete: Our increase in scale since that time shows the inverse leverage attainable from top line growth focused cost management and disciplined execution.

Pete: For the first quarter behind US we are reiterating reiterating our full year EPS guidance range of $13 19, a $14 19.

Pete: Including an updated 19th estimate from the benefit of ASU.

Pete: Looking forward, we see the primary challenges affecting our industry as being the macroeconomic picture.

Pete: Without a doubt the decline in new pool construction creates a complex operating environment, but we are confident that this is just a cycle that will change just as we have seen in the past.

Pete: Remember pools are still highly desirable the installed base continues to grow and the aftermarket upgrade opportunities are sizable.

Pete: Demographic shifts will only help power these important trends for years to come.

Peter D. Arvan: With the first quarter behind us, we are reiterating our full-year EPS guidance range of $13.19 to $14.19, including an updated $0.19 estimate from the benefit of ASU. Looking forward, we see the primary challenges affecting our industry as being the macroeconomic picture. Without a doubt, the decline in new pool construction creates a complex operating environment, but we are confident that this is just a cycle that will change just as we have seen in the past. Remember, pools are still highly desirable. The installed base continues to grow, and the aftermarket upgrade opportunities are sizable. Demographic shifts will only help power these important trends for years to come.

Pete: We are intensely focused on improving the customer experience capacity creation and building and launching our industry leading digital ecosystem.

Pete: We will continue to expand our network to position us to best serve the pros and supports the retailers that cater to the DIY market.

Pete: Gross margins remains a top priority for the team as well we have identified comprehensive plans to achieve our goals and enhance our performance in this area. Our teams are committed and focused on supply chain efficiencies.

Pete: Private label product growth and pricing optimization, along with our proven track record on execution.

Pete: With our robust cash flow generation capital capacity and strong balance sheet, we will continue to be a disciplined capital allocator and as strategic growth investor.

Pete: Through our team we collectively work to provide the best service to our customers and exceptional returns to our stakeholders.

Speaker Change: I would like to wrap up by thanking the <unk> team for their continued persistence.

Peter D. Arvan: We are intensely focused on improving the customer experience, capacity creation, and building and launching our industry-leading digital ecosystem. We will continue to expand our network to position us to best serve the pros and support the retailers that cater to the DIY market. Gross margins remain a top priority for the team as well. We have identified comprehensive plans to achieve our goals and enhance our performance in this area. Our teams are committed to and focused on supply chain efficiencies.

Pete: Through our collaboration with our supplier partners and our customers. We aimed to provide we aimed towards executing a successful 2020 for swimming pool season.

Pete: I'll now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer for a detailed commentary.

Melanie M. Housey Hart: Thank you Pete starting on page three of our presentation, you'll see our first quarter 2024, our results at a glance as reported in our press release.

Melanie M. Housey Hart: I'll begin my comments on slide four as we discussed the component impacting net sales and gross margin in the quarter.

Melanie M. Housey Hart: Net sales of $1 1 billion declined 7% over prior year, but showed an improving trend from eight 4% year over year decline in the fourth quarter of 2023.

Peter D. Arvan: Private label product growth and pricing optimization, along with our proven track record on execution. With our robust cash flow generation, capital capacity, and strong balance sheet, we will continue to be a disciplined capital allocator and a strategic growth investor. Through our team, we collectively work to provide the best service to our customers and exceptional returns to our stakeholders. I would like to wrap up by thanking the Pool Corp team for their continued perseverance.

Melanie M. Housey Hart: Positive price realization of approximately 2% was offset by continuing modestly improving trends in new pool construction and remodel activity with estimated volume decreases of 15% to 20% on construction and around 10% on remodel.

Melanie M. Housey Hart: That has translated into a 3% and 2% decline in consolidated sales compared to prior year.

Peter D. Arvan: Through our collaboration with our supplier partners and our customers, we aim to provide, and we aim towards executing a successful 2024 swimming pool season. I will now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer, for her detailed comments. Thank you, Pete.

Melanie M. Housey Hart: Estimate weather impact primarily in Florida negatively impacted sales approximately 2% in the quarter Kemet.

Melanie M. Housey Hart: Chemical and commodity pricing continued to normalize and are estimated to have a 1% negative impact on sales for the quarter.

Melanie M. Housey Hart: Horizon is in Europe sales declined in the quarter together had an approximate 1% effect on total net sales.

Melanie M. Housey Hart: Starting on page three of our presentation, you will see our first quarter twenty-two results at a glance as reported in our press release. I'll begin my comments on slide four as we discuss the components impacting net sales and gross margin in the quarter. Net sales of $1.1 billion declined 7% over the prior year, which shows an improving trend from the 8.4% year-over-year decline in the fourth quarter of 2023. However, positive price realization of approximately 2% was offset by continuing, though modestly improving, trends in new pool construction and remodel activity, with estimated volume decreases of 15 to 20% on construction and around 10% on remodel.

Melanie M. Housey Hart: While the quarter had the same number of selling days Mark had two fewer days.

Melanie M. Housey Hart: Some impact on the quarter as we typically see an upward ramp into the season and Mark is by far the largest sales month of the first quarter.

Melanie M. Housey Hart: Gross margin for the quarter was 32% compared to 36% in the first quarter of last year.

Melanie M. Housey Hart: Margin in the first quarter at 2024 included a benefit of $12 6 million or 110 basis point related to estimated import taxes previously recorded which was not considered in our latest discussion as expected first quarter margins as both the timing and the conclusion.

Melanie M. Housey Hart: Eric we're not readily determinable.

Melanie M. Housey Hart: As referenced on our call discussing fourth quarter 2022, adults with supply chain normalization and a return to our domestic sourcing strategy, we do not expect significant impacts from import tariffs going forward.

Melanie M. Housey Hart: Those translated into a 3% and 2% decline in consolidated sales compared to the prior year. We estimate weather impacts, primarily in Florida, negatively impacted sales approximately 2% in the quarter. Chemical and commodity pricing continue to normalize and are estimated to have a 1% negative impact on sales for the quarter. Horizons and Europe sales declined in the quarter.

Melanie M. Housey Hart: From a comparative standpoint, net resulting margin of $29, one was down 150 basis points compared to prior year.

Melanie M. Housey Hart: Including the expected decrease from higher average cost inventory in 2024 compared to 2023.

Melanie M. Housey Hart: Other impacts include product mix as lower margin equipment sales outpaced higher margin building materials.

Melanie M. Housey Hart: Together, they had an approximate 1% effect on total net sales. While the quarter had the same number of selling days, March had two fewer days, which had some impact on the quarter, as we typically see an upward ramp into the season, and March is by far the largest sales month of the first quarter. First margin for the quarter was 30.2% compared to 30.6% in the first quarter of last year. Gross margin in the first quarter of 2024 included a benefit of $12.6 million or 110 basis points related to estimated import taxes previously recorded, which was not considered in our latest discussion of expected first quarter margins as both the timing and the conclusion of this open area were not readily determinable.

Melanie M. Housey Hart: Customer mix.

Melanie M. Housey Hart: Reflecting a greater proportion of sales to larger customers, who participate in customer rebate program and have volume based pricing.

Melanie M. Housey Hart: And an increase in customer early buys so that special pricing, including preseason pricing in a number of major markets, resulting from the rainy and sluggish start to the season here.

Melanie M. Housey Hart: These were offset by a higher volume based vendor incentives as purchasing patterns normalize in 2024.

Melanie M. Housey Hart: Main areas different from our expected 60 basis points decline as previously communicated with a lower building material sales and the higher mix of pre season pricing.

Melanie M. Housey Hart: On page five you will see our quarterly financial trends.

Melanie M. Housey Hart: Due to the seasonal nature of our business. Many of these metrics very sequentially operating expenses as a percentage of net sales is typically highest in the fourth and first quarters due to the lower sales volumes.

Melanie M. Housey Hart: As referenced in our call discussing fourth quarter 2022 results with supply chain normalization and a return to our domestic sourcing strategy, we do not expect significant impacts from import tariffs going forward. From a comparative standpoint, net resulting margin of 29.1 was down 150 basis points compared to the prior year, including the expected decrease from higher average cost inventory in 2024 compared to 2023. Other impacts include product mix, as lower-margin equipment sales outpaced higher-margin building materials.

Melanie M. Housey Hart: Operating expenses in the quarter were 25% and increased by $6 million or just under 3% over prior year.

Melanie M. Housey Hart: We continued to manage variable expenses to offset higher inflationary increases in rent insurance in our first quarter merit wage increases.

Melanie M. Housey Hart: As discussed we continue making investments in our strategic technology initiatives, such as our corporate 60 acres that would we.

Melanie M. Housey Hart: Added four new sales centers in the first quarter, we organic and one through acquisition and we are working to add another five new Greenfield south centers prior to the peak season.

Melanie M. Housey Hart: Customer Mix, reflecting a greater proportion of sales to larger customers who participate in customer rebate programs and have volume-based pricing, and an increase in customer early buys sold at special prices, including preseason pricing in a number of major markets, resulting from the rainy and sluggish start to the season. However, these were offset by a higher volume-based vendor incentive as purchasing patterns normalized in 2024. The main areas different from our expected 60 basis points decline, as previously communicated, were lower building material sales and the higher mix of pre-season prices.

Melanie M. Housey Hart: For the quarter, we reported operating income of $109 million compared to prior year operating income of $146 million.

Melanie M. Housey Hart: Lower levels of debt, even with a higher borrowing rate resulted in a $2 4 million reduction in interest expense versus last year.

Melanie M. Housey Hart: Net income of 79 million compared to $101 million in prior year first quarter reflect lower operating income, partially offset by lower interest expense and a lower effective income tax rate due to an increase in ASU tax benefit this quarter versus Q1 2023.

Melanie M. Housey Hart: We realized a 19% benefit from <unk> in the quarter up from the 10 cents, we estimated in our guidance and compared to a 12 that benefit in Q1 2023.

Melanie M. Housey Hart: On page five, you will see our quarterly financial trends. Due to the seasonal nature of our business, many of these metrics vary sequentially. Operating expenses as a percentage of net sales are typically highest in the fourth and first quarters due to the lower sales volume. Operating expenses in the quarter were 20.5% and increased by $6 million, or just under 3% over the prior year.

Melanie M. Housey Hart: Also realized a benefit of 24 cents from the reduced import tax amount recorded during the quarter.

Melanie M. Housey Hart: This resulted in diluted earnings per share for the quarter of $2 and four <unk>.

Melanie M. Housey Hart: Compared to $2 58 in the first quarter of 2023, a decrease of 21%.

Melanie M. Housey Hart: Moving to five six cash flows from operating activities increased to a first quarter record of $145 million, an increase of $42 million over last year's first quarter. We continued to invest capital in technology development and she says sales center network expansion and improvements and acquisitions clothing, one during the quarter.

Melanie M. Housey Hart: We continue to manage variable expenses to offset higher inflationary increases in rent, insurance, and our first quarter merit wage increase. As discussed, we continue making investments in our strategic technology initiatives, such as our Pool 360 ecosystem. We added four new sales centers in the first quarter, three organically and one through acquisition. And we are working to add another five new greenfield sales centers prior to the peak season. For the quarter, we reported operating income of $109 million compared to prior year operating income of $146 million. Lower levels of debt, even with a higher borrowing rate, resulted in a $2.4 million reduction in interest expense compared to last year.

Melanie M. Housey Hart: Our accounts receivable days outstanding of $26 nine days remained in line with typical preseason activity levels, including customer early buy programs and are in a good position as we enter the peak selling season and exit the course of a year, where our customers are typically more cash constrained.

Melanie M. Housey Hart: As we planned inventory levels continue to normalize finishing the first quarter at $1 5 billion, a $190 million lower than Q1 last year. The increase from year end at $131 million is intended to prepare for the upcoming season and is fully offset by increased accounts payable.

Melanie M. Housey Hart: Net income of $79 million compared to $101 million in the prior year first quarter reflects lower operating income, partially offset by lower interest expense, and a lower effective income tax rate due to an increase in ASU tax benefits this quarter versus Q1 2023. We realized a $0.19 benefit from ASU in the quarter, up from the $0.10 we estimated in our guidance and compared to a $0.12 benefit in Q1 2023. We also realized a benefit of $0.24 from the reduced import tax amount recorded during the quarter. This resulted in diluted earnings per share for the quarter of $2.04 compared to $2.58 in the first quarter of 2023, a decrease of 21 percent.

Melanie M. Housey Hart: Our inventory days on hand have reduced from 142 to 132, and we expect to continue seeing this trend of lower comparative days as we lap last year's higher inventory levels through the third quarter.

Melanie M. Housey Hart: We reduced borrowings by $387 million compared to Q1 last year and 74 million from year end, while continuing to make investments in the business are.

Melanie M. Housey Hart: Our debt to EBITDA leverage ratio stands at 1.4 as of the end of the quarter slightly below our one five to two times target providing significant growth investment capacity.

Melanie M. Housey Hart: Our current quarterly dividend of $1 10 per share returned $42 million to shareholders. We also completed a $10 million and it's been market share buybacks during the quarter and 50 million through our earnings call and have 284 million remaining under our share repurchase authorization.

Melanie M. Housey Hart: With the first quarter behind Us and an early view to the start of the 2024 season, we maintain our failure guide of flat to slightly positive growth in 2024 based on historic pre pandemic seasonal sales pattern, our first quarter sales as a proportion of full year sales.

Melanie M. Housey Hart: Moving to slide six, cash flows from operating activities increased to a first quarter record of 145 million, an increase of 42 million over last year's first quarter. We continue to invest capital in technology development initiatives, sales center network expansion and improvements, and acquisitions, closing one during the quarter. Our accounts receivable days outstanding of 26.9 days remain in line with typical pre-season activity levels, including customer early buy programs, and we are in a good position as we enter the peak selling season and exit the portion of the year where our customers are typically more cash constrained.

Melanie M. Housey Hart: This is a reasonable expectation as we move further into the second quarter and the beginning of the peak selling season, our visibility improved and we will have better insight into the full year after our second quarter.

Melanie M. Housey Hart: The 1% to 2% annual benefit we could have achieved from normalized weather in the first two quarters has not been observed to date. Therefore, it is still uncertain that we will see a significant weather recovery for the full year.

Melanie M. Housey Hart: Our expectation for inflation for the year remain unchanged as price benefits of approximately 3% on equipment has progressed as expected slightly less on our remaining categories for an estimated 2% overall.

Melanie M. Housey Hart: As planned, inventory levels continue to normalize, finishing the first quarter at $1.5 billion, $190 million lower than Q1 last year. The increase from year-end of $131 million is intended to prepare for the upcoming season and is fully offset by increased accounts payable. Our inventory days on hand have reduced from 142 to 132, and we expect to continue seeing this trend of lower comparative days as we lag last year's higher inventory levels through the third quarter.

Melanie M. Housey Hart: Maintenance activity is tracking as expected and our volume expectations for renovation and remodel and new construction markets and the range of flat to downturn remains reasonable at this point in the year, we still anticipate that horizon Europe could declined 5% for the full year.

Melanie M. Housey Hart: No significant contribution is expected from the additional selling days as they are late in the year.

Melanie M. Housey Hart: We still anticipate full year gross margin to approximate 30%.

Melanie M. Housey Hart: Look for the increased activity across the industry to moderate some of the preseason pricing activity.

Melanie M. Housey Hart: We reduced outstanding borrowings by $387 million compared to Q1 last year and $74 million from year-end while continuing to make investments in the business. Our debt-to-event-to-leverage ratio stands at 1.4 as of the end of the quarter, slightly below our 1.5 to 2 times target, providing significant growth investment capacity. Our current quarterly dividend of $1.10 per share returned $42 million to shareholders.

Melanie M. Housey Hart: And with our supply chain and pricing strategic actions underway to realize the favorable benefit in second quarter.

Melanie M. Housey Hart: Our expectations for operating expenses remained relatively unchanged volume related expenses will continue to correlate with business activity, while certain inflation affect expenses, such as rent insurance and wages will increase compared to last year.

Melanie M. Housey Hart: Performance based incentive compensation will only increase based on operating income improvements achieved as it will reflect actual performance relative to performance plan.

Melanie M. Housey Hart: We also completed $10 million of open market share buybacks during the quarter and $50 million through our earnings call and have $284 million remaining under our share repurchase authorization. With the first quarter behind us and an early view to the start of the 2024 season, we maintain our full-year guide for flat to slightly positive growth in 2024. Based on historic pre-pandemic seasonal sales patterns, our first quarter sales as a proportion of full-year sales suggest this is a reasonable expectation.

Melanie M. Housey Hart: Strategic growth oriented expenses, such as investments in sales Center network expansion tuck in acquisitions and ongoing technology development will continue as we gain share and work to improve our service offering.

Melanie M. Housey Hart: With flat revenue for the full year, we believe operating margin of around 13% is attainable.

Melanie M. Housey Hart: Estimated interest expense in the range of 50 to 53 million is unchanged from our previous guidance and we would expect it to be higher in Q2, following our early by payments to vendors.

Melanie M. Housey Hart: No changes to our expected annual tax rate of 25, 3%, excluding ASU benefit.

Melanie M. Housey Hart: As we move further into the second quarter and the beginning of the peak selling season, our visibility improves, and we will have better insight into the full year after our second quarter. However, the 1 to 2% annual benefit we could have achieved from normalized weather in the first two quarters has not been observed to date.

Melanie M. Housey Hart: Fully diluted weighted average shares outstanding is expected to be approximately $38 75 million shares excluding any effects of additional share buybacks.

Melanie M. Housey Hart: Got it for 2024 and diluted EPS of $13 19 to $14 19 now.

Melanie M. Housey Hart: <unk> 19 cents of ASU benefit up from 10 cents and our previously provided range.

Melanie M. Housey Hart: Therefore, it is still uncertain that we will see a significant weather recovery for the full year. Our expectations for inflation for the year remain unchanged, as price benefits of approximately 3% on equipment have progressed as expected, slightly less on our remaining categories, or an estimated 2% overall. Maintenance activity is tracking as expected, and our volume expectations for renovation and remodel and new construction markets in the range of flat to downtown remain reasonable at this point in the year. However, we still anticipate that Horizon Europe could decline 5% for the full year. No significant contribution is expected from the additional selling days as they are late in the year.

Melanie M. Housey Hart: In summary, we are focused on continued discipline in managing our business through this time of economic uncertainty.

Melanie M. Housey Hart: Investing in areas of strategic long term growth.

Melanie M. Housey Hart: We are in a position of strength as we have access to high levels of capital to fund our growth plans the.

Melanie M. Housey Hart: The same time, we continue to reward our existing shareholders with increasing cash dividends and ongoing share buyback program or.

Melanie M. Housey Hart: Our capital allocation approach allows us to continue to deliver increasing returns as we improve our operating results from the legacy a disciplined consistent execution.

Speaker Change: We are now ready to move into the Q&A portion of our call.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: We're using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please.

Melanie M. Housey Hart: We still anticipate full-year growth margin to approximate 30%. We look for increased activity across the industry to moderate some of the preseason pricing activity, combined with our supply chain and pricing strategic actions underway, to realize the favorable seasonal benefits in the second quarter. Our expectations for operating expenses remain relatively unchanged. Volume-related expenses will continue to correlate with business activity, while certain inflation-affected expenses, such as rent, insurance, and wages, will increase compared to last year. Performance-based incentive compensation will only increase based on operating income improvements achieved, as it will reflect actual performance relative to the performance plan.

Speaker Change: Please press Star then two please.

Speaker Change: Please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from David Manthey with Baird. Please go ahead.

David John Manthey: Thank you good morning, everyone.

David John Manthey: Hey, good morning, I guess gross margin is going to be a major focus of this quarter.

David John Manthey: It's my understanding the reversal of import taxes was not contemplated in your prior margin discussion. So it wasn't an and prior guidance either I just wanted to check that that's correct and then Melanie I think you said, what the EPS, but if it was just four.

Speaker Change: Completion here could you repeat that for me please.

Melanie M. Housey Hart: Sure the EPS benefit it blends out 24 cents in the quarter and you are correct. So I review of that tariff classification issue has been open and ongoing since December of 2022, when we originally recognized and recorded the potential liability.

Melanie M. Housey Hart: Strategic growth-oriented expenses, such as investments in sales center network expansion, tuck-in acquisitions, and ongoing technology development, will continue as we gain share and work to improve our service offering. With flat revenue for the full year, we believe an operating margin of around 13% is attainable. Estimated interest expense in the range of $50 to $53 million is unchanged from our previous guidance, and we would expect it to be highest in Q2 following our early buy payments to vendors. No changes to our expected annual tax rate of 25.3% excluding ASU benefits. The fully diluted weighted average shares outstanding are expected to be approximately 38.75 million shares, excluding any effects of additional share buyback.

Speaker Change: As we mentioned back on our call we accrued the additional expense based on uncertainty regarding the classification.

Speaker Change: So certain products there'll be imported and related to their their tariff that would be a SaaS.

Speaker Change: We have completed our review and its termination with them working with U S customs.

Speaker Change: So we did learn is that favorable determination earlier this month, which was after we gave our previous guidance for margins for the quarter.

Speaker Change: Okay and.

Speaker Change: It's very onetime in nature, both the benefit.

Speaker Change: Benefit and the benefit but if you.

Speaker Change: Exclude both of those from the numbers I mean, we kind of look at this slide.

Speaker Change: Five.

Speaker Change: In the upper right hand panel.

Speaker Change: Clearly there is seasonality there, but I think if you even normalized fourth quarter of 2002, and the first quarter of 'twenty four.

Melanie M. Housey Hart: That is for 2024 diluted EPS of $13.19 to $14.19, which now includes $0.19 of ASU benefit up from $0.10 in our previously provided rate. In summary, we are focused on continued discipline in managing our business through this time of economic uncertainty while investing in areas of strategic long-term growth. We are in a position of strength as we have access to high levels of capital to fund our growth plan. At the same time, we continue to reward our existing shareholders with increasing cash dividends in an ongoing share buyback program.

Speaker Change: And smooth out seasonality it still looks like we're on a.

Speaker Change: Downward trajectory and it really.

Speaker Change: Somewhat unabated I'm, just wondering if you could give us some confidence in that 30% line in the sand how you feel.

Speaker Change: That this sort of decline that we're seeing here over the past several years.

Speaker Change: Moderates and maybe even versus.

Speaker Change: Yeah, So as I said, a few things yeah, specifically as it related to the guidance that we gave on our year end call kind of excluding the impact from the import taxes.

Operator: Our capital allocation approach allows us to continue to deliver increasing returns as we improve our operating results from a legacy of disciplined, consistent execution. We are now ready to move into the Q&A portion of our call. Thank you. To ask a question, you may press star, then 1 on your touch-tone phone.

Speaker Change: We are different from our original expectation, where one the mix on the building materials. So you know in our.

Speaker Change: Our guide contemplated that new construction will be down in kind of that flat to down 10% range. So it was that it was a little bit worse than that for first quarter.

Speaker Change: We are seeing some positive trends in permits and a couple of our key states as Pete mentioned it typically takes around 60 days from permitting for that to turn into meaningful sales for us.

Operator: If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed and you would like to withdraw your question, press star then. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from David Manthey with Baird.

Speaker Change: So we are still expecting as part of the full year that we would see that as declines on the new construction side moderate.

Speaker Change: And so with that once we get to that kind of downturn, we will get some improvements in our mix our product mix.

David John Manthey: Please go ahead. Thank you. Good morning, everyone.

Speaker Change: The other item that you mentioned was related to I'm kind of some preseason pricing.

Melanie M. Housey Hart: Good morning. I guess gross margin is going to be a major focus of this quarter. It's my understanding the reversal of import taxes was not contemplated in your prior margin discussion. So it wasn't in prior guidance, either. I just wanted to check that that's correct. And then Melanie, I think you said what the EPS benefit was just for completion here. Could you please repeat that for me, please?

Speaker Change: There were several of the markets are more heavily impacted by weather, where we did see some.

Speaker Change: Customers are looking for some more competitive pricing in order to to start off their projects for the season.

Speaker Change: We see that as not recurring as we move into at the core of the season, primarily because some of those some of those projects won't won't continue once the maintenance portion of that business I kicked up into full swing.

Melanie M. Housey Hart: Sure. The EPS benefit was $0.24 in the quarter, and you are correct. So our review of that tariff classification issue has been open and ongoing since December of 2022, when we originally recognized and recorded the potential liability. As we mentioned back on our call, we accrued the additional expense based on uncertainty regarding the classification of certain products that we imported and related to their tariff that would be assessed. We have completed a review and a determination working with U.S. Customs.

Speaker Change: Okay. Thank you I appreciate it.

Speaker Change: The next question comes from Ryan Merkel with William Blair. Please go ahead.

Ryan James Merkel: Hey, everyone. Thanks for taking the question I'll follow up on gross margin.

Ryan James Merkel: Should we be thinking you mentioned you expect a lift in the second quarter should we be thinking something modest like 2030 basis points lift versus the first quarter and is the biggest driver just this competitive environment do you think it's better as we get into season.

Speaker Change: Yeah. So the second quarter. We are so we are expecting it to be less than last year, because we will have a little bit of a tail of that lower cost inventory I'm just kind of early in second quarter. So we would expect it to be less than last year, but I would say that it would be pretty close to our kind of full year guide.

Melanie M. Housey Hart: So we did learn of that favorable determination earlier this month, which was after we gave our previous guidance for margins for the quarter. Okay. And, you know, it's very one-time in nature, both the dis-benefit and the benefit.

Speaker Change: Around 30%.

Speaker Change: So well see I think the biggest changes from first to second quarter in which we see in a typical year I'm a lot of that is going to be the mix of products. So as we start mixing up into the chemicals and the maintenance components that are more heavy in the second quarter.

Melanie M. Housey Hart: But if you exclude both of those from the numbers, and we kind of look at this, what is it? Slide five in the upper right-hand panel, clearly, there's seasonality there. But I think if you even normalize the fourth quarter of 22 and the first quarter of 24 and smooth out seasonality, it still looks like we're on a downward trajectory, and it really continues somewhat unabated. I'm just wondering if you can give us some confidence in that 30% line in the sand, how you feel that this sort of decline that we're seeing here over the past several years will moderate and maybe even reverse.

Speaker Change: Well as we get some benefit overall from geographic mix and and the higher sales that peak within the like the snowbelt markets.

Speaker Change: Brian one of the things that you have to consider too is when you have a.

Speaker Change: Soft softer.

Speaker Change: First quarter, we mentioned that we think building permits.

Speaker Change: We're off to a construction was off.

Speaker Change: We believe it will be for the total year.

Speaker Change: Just competitive forces in the market that you have early by payments that are going to be due from the supplier due from the.

Melanie M. Housey Hart: Yeah, so the two things, you know, specifically as it related to the guidance that we gave on our year-end call, kind of excluding the impact of the import taxes that were different from our original expectation, were one, the mix of building materials. So, you know, our guide contemplated that new construction would be down in kind of that flat to down 10% range. So it was a little bit worse than that for the first quarter.

Speaker Change: Suppliers on all of the distributors and oftentimes, what we see and again nothing new this happens.

Speaker Change: Every time, we happened to be in a cycle like this there's more competitive pressures as people are trying to move our product to liquidate inventory. So that they can generate enough cash to make those early by payments now.

Melanie M. Housey Hart: You know, we are seeing some positive trends in permits in a couple of our key states. As Pete mentioned, it typically takes around 60 days from permitting for that to turn into meaningful sales for us. So, you know, we are still expecting, as part of the full year, that those declines on the new construction side will moderate. And so, you know, with that, once we get to that kind of down 10, we'll see some improvements in our mix, our product mix.

Speaker Change: According to just normal.

Speaker Change: Industry, our normal seasonality as you move into the second quarter.

Speaker Change: Everybody is busier.

Speaker Change: The products our products are flying off the shelf as people are trying to open up pool. So that you know.

Speaker Change: What I would call a.

Speaker Change: Seasonal.

Speaker Change: Competitive pressure tends to wane pretty quickly.

Speaker Change: Okay that makes sense.

Speaker Change: And then I want to follow up on sales. You also mentioned you expect sales to improve in the second quarter I'm. Just curious what does a return to seasonal buying mean for the second quarter sales and then have you seen April improve with better weather.

Melanie M. Housey Hart: And then the other item that we mentioned was related to kind of some pre-season pricing. So there were several of the markets more heavily impacted by weather where, you know, we did see some customers looking for some more competitive pricing in order to start off their projects for the season. We see that not recurring as we move into the core of the season, primarily because some of those projects won't continue once the maintenance portion of the business kicks off in the fall swing. Thank you. I appreciate it. The next question comes from Ryan Merkel with William Blair. Please go ahead.

Speaker Change: So what I would say is.

Speaker Change: Supply chain are essentially any COVID-19 effects at this point are essentially out of the out of the supply chain. There is some.

Speaker Change: Lingering inventory, but really not much so any idea that hey, I would have to go out and purchase product ahead of time to make sure I had product.

Speaker Change: Is it really hit in the rear view mirror, so what happens is that.

Ryan James Merkel: Hey, everyone. Thanks for taking the question. I'll follow up on gross margin. Should we be thinking, you mentioned you expect a lift in the second quarter. Should we be thinking something modest like 20, 30 basis points lift versus the first quarter, and is the biggest driver just this competitive environment you think gets better as we get into the season?

Speaker Change: <unk>.

Speaker Change: I think we did pretty good on early buys really and I would tell you that I think the early buy wins as I mentioned in my comments really were a function of share gains it wasn't people going out, saying, hey, I need to I need to procure product because I won't be able to get it.

Speaker Change: So I think we did well on share gain and what I mean by normal seasonality is everybody's guess product. So the retailers are like well as long as I know that you have it then I don't need to stock the back rooms full of product. So I want to make sure that I have it for that first Sunny Hot weekend I can order it.

Melanie M. Housey Hart: Yeah, so the second quarter, we are, we are expecting it to be less than last year because we'll have a little bit of a tail of that lower cost inventory just kind of early in the second quarter. So we would expect it to be less than last year. But I would say that it would be, you know, pretty close to our, you know, kind of full year guide of around 30%.

Speaker Change: A couple of days in advance and have the product chips.

Speaker Change: That's what we mean when returned to normal seasonality. We have product you know the industry suppliers are in reasonably good shape. So I don't know that people are having to pull ahead. So we expect the demand to increase as the.

Speaker Change: The product flows through the market and the pools are opened in the seasonal markets and in the in the year round markets the swimming season officially.

Peter D. Arvan: So, you know, we'll see. I think the biggest change is kind of from the first to second quarter, which we receive. In a typical year, a lot of that's going to be the mix of products. So as we start mixing in the chemicals and the maintenance components that are more heavy in the second quarter, as well as getting some benefits overall from a geographic mix and higher sales that peak within the, like the snowbelt market.

Speaker Change: Kicks off.

Speaker Change: April.

Speaker Change: From a revenue perspective.

Speaker Change: <unk> is.

Speaker Change: Okay.

Speaker Change: Where we have had where we've had good weather, which is pretty much I don't know if we've had a ton of weather headwinds in April I would say demand in.

Speaker Change: April is as close to what we would have expected. So I think at this point.

Speaker Change: Feel pretty good about it.

Speaker Change: Alright, I'll pass it on thanks.

Speaker Change: Thanks.

Speaker Change: The next question comes from Susan Mcclary with Goldman Sachs. Please go ahead.

Peter D. Arvan: Ryan, one of the things you have to consider too is when you have a soft, softer. We mentioned that we think building permits were off, so construction was off more than we believe it will be for the total year.

Susan Marie Maklari: Thank you good morning, everyone.

Susan Marie Maklari: Good morning.

Susan Marie Maklari: Maybe just sticking on this gross margin point for a bit longer you did mentioned Pete that you've identified some initiatives in order to drive that over time can you talk a bit more to those efforts and I guess, how you're thinking about them coming through and especially given the fact that we could see.

Peter D. Arvan: So you have just competitive forces in the market that, you know, you have early buy payments that are going to be due from the suppliers to all the distributors. And oftentimes, and this happens every time we happen to be in a cycle like this, there's more competitive pressures as people are trying to move product to liquidate inventory so that they can generate enough cash to make those early buy payments. Now, again, according to just normal industry or normal seasonality, as you move into the second quarter, everybody is busier.

Susan Marie Maklari: A tougher macro perhaps over the next couple of quarters, just the ability to continue to execute on those.

Susan Marie Maklari: Yes.

Pete: One of the things that I mentioned that our pricing optimization work. So the teams are working very hard around pricing optimization and when you calculate gross margin you basically how do you calculate gross margin based on the obviously on the cost of goods, but as the cost of goods fluctuates.

Peter D. Arvan: The products are, you know, products are flying off the shelf as people are trying to open up pools. So, you know, that what I would call a seasonal lift in competitive pressure tends to wane pretty quickly. Okay, that makes sense. And then I want to follow up on sales.

Speaker Change: As you are selling down inventory changes it can it can create a false signal. So we've been looking at gross margins selling margins from from average cost and the work that the team has done.

Peter D. Arvan: You also mentioned you expect sales to improve in the second quarter. I'm just curious, what does a return to seasonal buying mean for second quarter sales? And then, have you seen April improve with better weather?

Speaker Change: Has given us a couple of.

Speaker Change: Once a positive signs that that we are.

Speaker Change: We're getting better from a gross margin.

Peter D. Arvan: So what I would say is, you know, with supply chains, essentially, any COVID effects at this point are essentially out of the supply chain. There's some, you know, lingering inventory, but really not much. So any idea that, hey, I would have to go out and purchase product ahead of time to make sure I had product is really in the rearview mirror. So what happens is that people, you know, where I think we did pretty good on early buys, really.

Speaker Change: Got it doing better in gross margin from pricing realization as a result of the team's work so January.

Speaker Change: When they kind of got started in earnest. So not much result of January but we were encouraged by the results that we saw in February and they were even better in the month of March so that gives us confidence and I'd also tell you that the supply chain has done a very good job of working with our supplier partners and making sure that we are that we are stocked in the pro.

Speaker Change: Grahams are in place and I think that but that certainly has an impact on the overall gross margin of the business.

Peter D. Arvan: And I would tell you that I think the early buy wins, as I mentioned in my comments, really were a function of share gain. It wasn't people going out saying, hey, I need to procure product because I won't be able to get it.

Speaker Change: I would also tell you that as I mentioned, our private label programs are front and center on everybody's mind and you see the push that we have on chemicals is that tied to the full 360 ecosystem, which really has been has allowed us to.

Peter D. Arvan: So I think we did well on share gain. And what I mean by normal seasonality is that everybody has a product. So the retailers are like, well, as long as I know that you have it, then I don't need to, you know, stock the back rooms full of product. So to make sure that I have it for that first sunny, hot weekend, I can order it a couple days in advance and have the product shipped.

Speaker Change: Really make progress on the private label Chems. So we're very encouraged by the results there, which obviously come and they come with a margin premium and then maybe the most underappreciated. One is just execution, which you know <unk> has an amazing reputation of being focused on execution and not getting distracted because you.

Peter D. Arvan: So I think that's what we mean when we return to normal seasonality. We have the product, you know; the industry and suppliers are in, you know, reasonably good shape. So I don't know that people are having to pull ahead. So there, you know, we expect the demand to increase as the product flows through the market and pools are opened in the seasonal markets. And in year-round markets, the swimming season officially kicks off.

Speaker Change: Could make progress in other areas and then basically let it slip through your fingers through sloppy execution and I can tell you that in the tightened macroeconomic environment. The team is exceptionally focused on execution to make sure that we hold on to every dollar that we have and we don't want any of it slipped through the cracks.

Speaker Change: Okay. That's helpful and then maybe turning to the new construction on the R&R side, you mentioned that permits and a lot of these key markets came in lower than where you had anticipated in the first quarter I guess, what are you seeing or what gives you the confidence that we could see that moderation through the year and I guess, how are you thinking about.

Peter D. Arvan: You know, April, from a revenue perspective, April is okay. I mean, where we've had good weather, which is pretty much, I don't know if we've had a ton of weather headwinds in April. I would say demand in April is close to what we would have expected. So I think at this point, we feel pretty good about it. All right, I'll pass it on.

Speaker Change: Both of those R&R and new construction, if we do see rates continue to move higher.

Susan Marie Maklari: Thanks. The next question comes from Susan Maklari with Goldman Sachs. Please go ahead. Thank you. Good morning, everyone.

Speaker Change: Yes.

Speaker Change: We look at permits which is is an indicator right. It's not the end all deal, but it is an indicator of what's going on in the market because there's always a timing lag with permits if you talk to any builder with they'll tell you is that what used to take you know a week or a couple of days to get a permit now can take a couple of months, but you figure that.

Peter D. Arvan: Good morning. Maybe just sticking with this gross margin point for a bit longer. You did mention, Pete, that you've identified some initiatives in order to drive that over time. Can you talk a bit more about those efforts and, I guess, how you're thinking about them coming through and, especially given the fact that we could see a tougher macro environment perhaps over the next couple of quarters, just the ability to continue to execute on those? Yeah.

Speaker Change: Over time that normalizes and then still the change in permits is the change in permits. So I can't tell you that I think cycle times in the last year have gotten worse I. Just noted it takes longer to get a permit so depending on when a family decides they want to pool, the time to which that permit would be realized in posted.

Peter D. Arvan: One of the things that I mentioned is our pricing optimization work. So, the teams are working very hard on pricing optimization. And, you know, when you calculate gross margin, you basically calculate gross margin based on, obviously, the cost of goods.

Peter D. Arvan: But as the cost of goods fluctuates, as you're selling down inventory, and it changes, it can create a false signal. So, we've been looking at gross margins, selling margins from average cost. And the work that the team has done, you know, has given us a couple of months of positive signs that we're getting better on gross margin from pricing realization as a result of the team's work. So January is really when they kind of got started in earnest.

Speaker Change: Be delayed over what it's been in the past so when we look at permits by geographic area, Arizona has.

Speaker Change: C.

Speaker Change: Permits turned positive in the month of March which is encouraging the same is true for Nevada, and the same is true for Florida.

Speaker Change: It Hasnt happened yet in California, It Hasnt happened Hasnt happened, yet in Texas, Although I think Texas is slightly better. So we're encouraged by the signs and then obviously.

Peter D. Arvan: So not much result in January, but we were encouraged by the results that we saw in February, and they were even better in the month of March. So that gives us confidence. And I'd also tell you that the supply chain has done a very good job of working with our supplier partners and making sure that we are stocked and that the programs are in place. And I think that that certainly has an impact on the overall gross margin of the business.

Peter D. Arvan: Obviously, we talked to a lot of builders and although theres no permits on remodel.

Peter D. Arvan: We talk to the builders about like what are you seeing from a backlog on renova.

Speaker Change: The renovations.

Speaker Change: And.

Speaker Change: As mentioned many times before renovations are kind of semi discretionary eventually you have to do it. So you can put it off for a year or two or three perhaps but eventually you have to do it so I think the.

Speaker Change: The headwinds that we've seen on renovations for the last couple of years anyway have.

Peter D. Arvan: I would also tell you that, as I mentioned, our private label programs are front and center in everybody's mind. And you see the push that we have on chemicals that's tied to the Pool 360 ecosystem, which really has allowed us to really make progress on the private label chems. So we're very encouraged by the results there, which obviously come at a margin premium. And then, you know, maybe the most underappreciated one is just execution, which Pool Corp has an amazing reputation for being focused on execution and not getting distracted because you can make progress in other areas. And then basically, let it slip through your fingers through sloppy execution.

Peter D. Arvan: Are starting to catch up so now the builders are reporting that their phones are ringing for renovation. So the first sign of life, but they are seeing in many markets is although.

Speaker Change: People aren't running through the door, saying take my money building a pool the number of people, calling and saying that hey, I wanted to do a renovation.

Speaker Change: Is increased now what I will tell you is is that if we look at if you look at Internet searches and you look at traffic on people looking for pool remodel one of the phenomenon that we see is that it appears that people in the builders would tell you. This too that consumers are shopping those remodels are lot more so a few years ago.

Speaker Change: Ben Hey at the peak if you will it was if you could if you answered the phone.

Peter D. Arvan: And I can tell you that in the tight macroeconomic environment, the team is exceptionally focused on execution to make sure that we hold on to every dollar that we have, and we don't let any of it slip through the cracks. Okay, that's helpful. And then maybe turning to the new construction and the R&R side, you mentioned that permits and a lot of these key markets came in lower than you had anticipated in the first quarter.

Speaker Change: <unk> got the order now consumers have more choices. So the cycle on remodel is the good news is that is that the interest in remodel is better than new pool construction.

Speaker Change: But it also.

Speaker Change: What we're seeing is that consumers are shopping those projects more talking to multiple builders to find out.

Peter D. Arvan: They're comfortable with and be who's going to give them the best value.

Peter D. Arvan: I guess, what are you seeing or what gives you the confidence that we could see that moderation through the year? And, I guess, how are you thinking about both of those, R&R and new construction, if we do see rates continue to move higher? Yeah, you know, we look at permits, which is an indicator, right? It's not the end-all, be-all, but it is an indicator of what's going on in the market because there's always a timing lag with permits.

Peter D. Arvan: The end of your question was what happens if the macroeconomic environment gets worse.

Speaker Change: I don't know that the environment is going to get meaningfully worse.

Speaker Change: Excuse me, but.

Speaker Change: If it does typically where we would see the offset would be in new pool construction.

Peter D. Arvan: The level of new pool, construction today, especially coming off the big decline last year in the 15% to 20% decline in permits that we've seen in the first quarter.

Peter D. Arvan: If you talk to any builder, what they'll tell you is that what used to take, you know, a week or a couple of days to get a permit now can take, you know, a couple of months.

Speaker Change: Would indicate that we are we are nearing the bottom plus we'd have submarkets that have inflected and theyre starting to increase hard for me to speculate.

Peter D. Arvan: But you figure that over time that normalizes, and then still the change in permits is the change in permits. So, I can't tell you that I think cycle times in the last year have gotten worse. I just know that it takes longer to get a permit.

Speaker Change: What the fed is going to do I don't know that the fed is going to raise rates because I believe that.

Speaker Change: The embedded inflation is not a function of demand. It's a function of SG&A. So I don't know that the fed reads. The the higher more stubborn inflation as an indicator that they should raise rates I see them more as far as at this point for the one rate cut perhaps that they've indicated later on in the year.

Peter D. Arvan: So, depending on when a family decides they want a pool, the time to which that permit would be realized and posted will be delayed over what it has been in the past. So, when we look at permits by geographic area, you know, Arizona has seen permits turn positive in the month of March, which is encouraging. The same is true for Nevada, and the same is true for Florida. But it hasn't happened yet in California. It hasn't happened yet in Texas, although I think Texas is slightly better.

Speaker Change: Okay.

Speaker Change: Very helpful. Thank you and good luck with everything.

Speaker Change: Thank you.

Speaker Change: The next question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Speaker Change: Thanks, very much good morning.

Scott Andrew Schneeberger: Pete I'm curious to get your your comments on a number two player in your industry recently acquired by a larger.

Peter D. Arvan: So, we're encouraged by the signs. And then, obviously, we talk to a lot of builders, and although there are no permits for the remodel, you know, we talk to the builders about, all right, what are you seeing from a backlog of renovations? And, you know, as mentioned many times before, renovations are kind of semi-discretionary. Eventually, you have to do them.

Scott Andrew Schneeberger: Business just your thoughts on the competitive dynamic of how that will be impacted maybe.

Scott Andrew Schneeberger: To retain labor other other considerations, we may not be thinking of and then as a kind of a part b to the question you mentioned youre hearing of consolidation maybe some of the weaker players in the industry in these tough times fading, how does that impact your business.

Peter D. Arvan: So, you can put it off for a year or two or three, perhaps, but eventually, you have to do it. So, I think, you know, the headwinds that we've seen on renovations for the last couple of years, anyway, are starting to catch up. So, now, the builders are reporting that their phones are ringing for renovations. So, the first sign of life that they're seeing in many markets is, although people aren't running through the door saying, take my money, build me a pool, the number of people calling and saying that, hey, I want to do a renovation has increased.

Peter D. Arvan: Thanks.

Peter D. Arvan: Sure.

Scott Andrew Schneeberger: No.

Speaker Change: We saw obviously, we saw the announcement last month on our.

Speaker Change: Or.

Speaker Change: I guess, maybe early this month.

Speaker Change: Excuse me on.

Speaker Change: The home depot.

Speaker Change: Turning to acquire Srs.

Speaker Change: I don't know that much really changes.

Speaker Change: They've made a point both.

Speaker Change: Srs and home depot have made it a point to say that theyre going to run the.

Speaker Change: Business separate.

Peter D. Arvan: When I think about the impact on our business.

Peter D. Arvan: Now, what I will tell you is that if you, you know, we look at, if you look at internet searches and you look at traffic on people looking for pool remodels, one of the phenomena that we see is that it appears that people, and the builders would tell you this too, that consumers are shopping those remodels a lot more. So, you know, a few years ago, it would have been, hey, at the peak, if you will, it was if you could, if you answered the phone, you got the order.

Speaker Change: I think theres going to be a change so theres going to be some folks perhaps that are in that business that are affected by the sale that that may cause may cause them to consider what they're doing.

Speaker Change: But as far as the impact on us if I'm pragmatic about it and I step back I say, well Theres no new competition.

Speaker Change: It's not like that this brings a lot more distributors into the market because there at this point, we don't see the channel to market changing.

Peter D. Arvan: Now, consumers have more choices. So, the cycle on remodel is, the good news is, is that, is that the interest in remodel is better than new pool construction. But it also, what we are seeing is that consumers are shopping those projects more, talking to multiple builders to find out, A, who they're comfortable with, and B, who's going to give them the best value. So the end of your question was, you know, what happens if the macroeconomic environment gets worse? You know, I don't know that the environment is going to get meaningfully worse, excuse me, but.

Speaker Change: We will see.

Speaker Change: A long term play of owning it versus private equity, which tends to be shorter term focus, which I think is excuse me a positive thing.

Speaker Change: So overall, we're basically going to take home depot.

Speaker Change: Srs at their comment is at face value and say I don't think really much as much is going to change. So time will tell the deal has to be reviewed the deal has to close but when we saw the announcement I guess it didn't it didn't.

Speaker Change: Cause us to say Wow, we need we need to do this or we need to do that because I don't think it really changes the competitive landscape much at all and as I said the comment on <unk>.

Peter D. Arvan: If it does, you know, typically where we would see the offset would be in new pool construction. But the level of new pool construction today, especially coming off the big decline last year and the 15 to 20 percent decline in permits that we've seen in the first quarter, would indicate that we are nearing the bottom, plus we have some markets that have inflected and are starting to increase. Now, it's hard for me to speculate, you know, what the Fed is going to do. I don't know that the Fed is going to raise rates, because I believe that embedded inflation is not a function of demand.

Speaker Change: Labor.

Speaker Change: One of our four operating principles has always been to be the employer of choice.

Peter D. Arvan: So we focus very hard at making sure that we're the best place to work and the people that join us stay with us and want to grow their career with us and we don't see that changing and we think we think we're pretty good at it we think we do a great job of retaining talent in the field.

Speaker Change: I'm focused on the swimming pool industry. That's what we do we're not going anywhere and I think people that want a career in this industry look at pool Corp, exceptionally favorable in that fashion the.

Peter D. Arvan: It's a function of SG&A. So I don't know that the Fed reads the higher, more stubborn inflation as an indicator that they should raise rates. I see them more as paused at this point for the one rate cut, perhaps, that they've indicated later on in the year. Okay, that's very helpful. Thank you and good luck with everything.

Speaker Change: The second part of your question that I mentioned consolidation amongst the builders again nothing new in a cycle like this you would expect the kind of the late to the party folks that decided hey, I will get into building because there's so much demand.

Scott Andrew Schneeberger: Thank you. The next question comes from Scott Schneeberger with Oppenheimer. Please go ahead. Thanks very much. Good morning.

Speaker Change: That when the demand wanes that things become very very tough for them and we're I think we're seeing that play out so the bigger stronger players when the markets get tough tend to outperform.

Peter D. Arvan: Pete, I'm curious to get your comments on the number two player in your industry, recently acquired by a larger business, just your thoughts on the competitive dynamic of how that will be impacted, maybe the ability to retain labor, other considerations we may not be thinking of. And then, as a kind of part B to this question, you mentioned your hearing of consolidation, maybe some of the weaker players in the industry in these tough times are fading away. How does that impact your business? Thanks. You know, obviously, we saw the announcement last month on our, I guess maybe earlier this month, excuse me, at the Home Depot. Attending to Acquire SRS.

Peter D. Arvan: Newer and perhaps weaker players so as the as the demand for new pool construction and remodel has come off of its highs people have decided that they're maybe going to focus just on service or just on cleaning or exit the business altogether.

Speaker Change: Whatever demand they would've had by definition is going to end up with one of the one of the remaining players in the market. So I don't think it really changes.

Peter D. Arvan: I don't know that much really changes, you know, they've made a point, both SRS and Home Depot have made a point to say that they're going to run the business separately. You know, when I think about the impact on our business, I think there's going to be a change. So there's going to be some folks perhaps that are in that business that are affected by the sale that may cause may cause them to consider what they're doing. But as far as, you know, the impact on us, if I'm pragmatic about it, and I step back, I say, well, there's no new competition.

Peter D. Arvan: The industry outlook, because I think that there's still plenty of capacity in the industry to address the needs. So I don't I can't look at it and say well that means less tools, we put in the ground. It means some of the larger customers are going to see a benefit from perhaps a little bit less competition.

Speaker Change: Great. Thanks, I appreciate that.

Speaker Change: Just one quick one on SG&A, just curious how much of a you've been targeting 20 million Tech initiatives. This year 15 on on on performance based comp 12 million, new Greenfield locations or is that going to be ratably through the year did you do what you expected to do and.

Peter D. Arvan: You know, it's not like this brings a lot more distributors into the market because, at this point, we don't see the channel to market changing. We'll see, you know, a long-term player owning it versus private equity, which tends to have a shorter term focus, which I think is, excuse me, a positive thing. So, you know, overall, we're basically going to take Home Depot and SRS's comments at face value and say, I don't think really much is going to change. So time will tell. The deal has to be reviewed. The deal has to close.

Peter D. Arvan: First quarter any cadence mix shift to that.

Peter D. Arvan: Versus what you've been saying just a quarter ago.

Peter D. Arvan: Yeah. So our original guidance on that is that the performance based compensation would be recorded basically pro rata over the year based on our actual operating results.

Peter D. Arvan: That's really the only one we did record a slightly less performance based compensation and then we would have if we had better results in the first quarter.

Peter D. Arvan: But, you know, when we saw the announcement, I guess it didn't cause us to say, wow, we need to do this, or we need to do that because I don't think it really changes the competitive landscape much at all. And as I said, the comment on labor, you know, one of our four operating principles has always been to be the employer of choice. So we focus very hard on making sure that we're the best place to work and that people that join us stay with us and want to grow their careers with us. And we don't see that changing, and we think we're pretty good at it. We think we do a great job of retaining talent in the field.

Speaker Change: That's really the only one that changed as far as the costs related to didn't you sell centers and the opening sales centers with the three that we've opened so far to date in the five that we're intending to get open before the season and cumulatively well have about eight has been pre season with a target of 10 for the year. So we are seeing.

Peter D. Arvan: Get them out of those costs in first and early second quarter.

Peter D. Arvan: And as it relates to the tech initiatives.

Peter D. Arvan: We have started to ramp that so we're pretty much right on target with what we've spent so far the year that Manuel.

Peter D. Arvan: Spend in the first quarter and then it will ramp up slightly through the rest of the year as we continue to onboard some of those resources that we need for those projects.

Peter D. Arvan: We're focused on the swimming pool industry. That's what we do. We're not going anywhere.

Peter D. Arvan: And I think people that want a career in this industry look at pool core exceptionally favorably in that fashion. The second part of your question that I mentioned, consolidation amongst the builders, again, nothing new, but in a cycle like this, you would expect the, you know, kind of the late to the party folks that decided, hey, I'll get into building because there's so much demand, but when the demand wanes, things become very, very tough for them.

Speaker Change: Great. Thanks very much.

Peter D. Arvan: The next question comes from Garik <unk> with loop capital. Please go ahead.

Garik: Oh, hi, thanks.

Garik: So just a clarification question.

Peter D. Arvan: But one or 2% benefit from normalized weather benefits you had in your prior guide.

Garik: Now you are saying you might not see that.

Garik: I wanted to be clear.

Peter D. Arvan: If that's what you're saying.

Speaker Change: Yes that is what we're saying so our original guide was for flat to kind of a low single digit growth embedded in that low single digit sales growth did include some of that weather recovery and so you know at this point, well really kind of look to see them.

Peter D. Arvan: And I think we're seeing that play out. So the bigger, stronger players, when the markets get tough, tend to outperform, you know, newer and perhaps weaker players. So as the demand for new pool construction and remodel has come off of its highs, people have decided that they're maybe going to focus just on service or just on cleaning or exit the business altogether. So whatever demand they would have had, by definition, is going to end up with one of the remaining players in the market.

Peter D. Arvan: Really how quickly the season ramps and then more importantly does the late start to the season cause it to either extend over into.

Speaker Change: Late in the third and fourth quarter and so if we see any of that recovery. It would be later in the year at this point.

Speaker Change: Got it and then just on some of the share gains and the initiatives. There some of the opportunities that you had in the first quarters.

Peter D. Arvan: Way to size, what that opportunity could be in just the stickiness of those share gains.

Peter D. Arvan: So I don't think it really changes industry output because I think that there's still plenty of capacity in the industry to address the needs. So I can't look at it and say, well, that means less pools get put in the ground.

Speaker Change: Yeah.

Speaker Change: What I would tell you is it really kind of goes by market. So you've seen that we have we'd lean very heavily into the into the aftermarket and the maintenance.

Peter D. Arvan: Business and I think our 360 ecosystem is is kind of leading the way there for us and the software that makes the.

Peter D. Arvan: It means some of the larger customers are going to see a benefit from perhaps a little bit less competition. Great, thanks. I appreciate that. And Melanie, just one quick one on SG&A.

Peter D. Arvan: Service providers more efficient and I think our expanded footprint makes us more convenient. So we always look at from a from a long term growth perspective share gains as part of our part.

Melanie M. Housey Hart: Just curious how much of, you know, you've been targeting 20 million tech initiatives this year, 15 on performance-based comp, and 12 million new greenfield locations. Is that going to be consistent through the year? Did you do what you expected to do in the first quarter?

Peter D. Arvan: Part of our model and we never really we never really give it back now when when I say.

Melanie M. Housey Hart: Any cadence mix shift to that versus what you were saying just a quarter ago? Yeah, so our original guidance on that was that the performance-based compensation would be recorded basically pro rata over the year based on our actual operating results. So that's really the only one that's changed. You know, we did record slightly less performance-based compensation than we would have if we had better results in the first quarter. So that's really the only one that's changed.

Speaker Change: When I say that is the thing you have to remember is is that in any given market I'm certain I mean, where practical and that I'm certain in any given market.

Melanie M. Housey Hart: You may lose a customer here and there, but by and large share gain has been part of our long term long term growth model and it will remain as part of our long term growth model. So we look at it it's about 1% in some markets could be more in some markets it could be a little bit less but we find that when people.

Melanie M. Housey Hart: As far as the cost related to the new sales centers and the opening of the sales centers, with the three that we've opened so far and the five that we're intending to get open before the season, cumulatively, we will have about eight open pre-season with a target of 10 for the year. So we are seeing a significant amount of those costs in the first and early second quarter. And then as it relates to the tech initiative, you know, we have started to ramp that up.

Melanie M. Housey Hart: Move over to us.

Melanie M. Housey Hart: That generally they stay with us and we kind of triangulate on that.

Melanie M. Housey Hart: The supplier information and how the suppliers are doing and we know for those same products. How we're doing and it is apparent very apparent to us that the share gains that we got all through the pandemic for the most part we've maintained and we continue we continue to gain share through today. So.

Melanie M. Housey Hart: So we're pretty much right on target with what we've spent so far this year. That one will, you know, we'll have some spend in the first quarter, and then it will ramp up slightly through the rest of the year as we continue to onboard some of those resources that we need for those projects. Great, thanks very much. The next question comes from Garik Shmois with Loop's Capital. Please go ahead.

Melanie M. Housey Hart: Given market might be give back a customer here and there we might but we try like hell to get that to get that customer back, but by and large we think it's part of our long term growth algorithm and it's in the 1% range.

Garik Simha Shmois: Great. Thank you for that.

Garik Simha Shmois: The next question comes from David Macgregor with Longbow Research. Please go ahead.

Garik Simha Shmois: Oh, hi, thanks. So just a clarification question. The 1-2% benefit from normalized weather that I think you had in your prior guide, now you're saying you might not see that. I just wanted to be clear, if that's what you're saying. Yeah, that is what we're saying. So our original guide was for flat to kind of a low single-digit sales growth. Embedded in that low single-digit sales growth was some of that weather recovery.

Garik Simha Shmois: Good morning, Thanks for taking my questions I guess I just wanted to look at the balance sheet for a moment you are at one four times debt to EBITDA.

Garik Simha Shmois: I think earlier to a question on consolidation amongst dealers.

Speaker Change: You offered some color I guess I'm thinking about consolidation.

Garik Simha Shmois: Ultimately unfold amongst some of your competitors and some of the distributors and I'm just wondering how far you'd be prepared to take the balance sheet in terms of leverage.

Garik Simha Shmois: Something on a larger scale were to come along.

Garik Simha Shmois: Yeah, I mean, I would tell you we're always very mindful of the balance sheet and making sure that we are we are responsible allocators of capital.

Garik Simha Shmois: And so, you know, at this point, we'll really kind of look to see, you know, really, how quickly the season ramps up. And then, more importantly, you know, does the late start to the season cause it to, you know, extend over into the late third and fourth quarters?

Garik Simha Shmois: We look at when.

Garik Simha Shmois: When we look at acquisitions, we look for a strategic fit and we also look for a cultural fit and then we also look for an economic an economic equation.

Garik Simha Shmois: Equation.

Speaker Change: That makes sense. So the good news about pool Corp, as we have a tremendously strong balance sheet and.

Melanie M. Housey Hart: And so if we see any of that recovery, it would be, you know, later in the year at this point. And then just on some of the share gains and the initiatives there, some of the opportunities that we had in the first quarters, any way to size what that opportunity could be in just the stickiness of those share gains? Um, what I would tell you is it really kind of goes by market. So you've seen that we have leaned very heavily into the aftermarket and the maintenance business.

Melanie M. Housey Hart: And we also have a very strong leadership team both of which are required not only to execute an acquisition, but to execute and integrate an acquisition and realize the savings, but with that very talented management team and a very strong balance sheet. It also gives us the ability to look at deals.

Peter D. Arvan: And I think our Pool 360 ecosystem is kind of leading the way there for us and the software that makes service providers more efficient. And I think our expanded footprint makes us more convenient. So, you know, from a long-term growth perspective, share gain is part of our business model, and we never really, we never really give it back.

Melanie M. Housey Hart: Let's say if they make sense financially then we would do them, but if not we also have the ability and frankly, a superior value proposition in almost all cases to say if we need additional capacity that we can do it from a greenfield perspective. So we are have always been very disciplined allocators of capital we would pay.

Peter D. Arvan: Now, when when I say, When I say that, the thing you have to remember is that in any given market, I'm certain, I mean, we're practical in that I'm certain in any given market, we may lose a customer here and there, but by and large, you know, share gain has been part of our long-term growth model, and it will remain as part of our long-term growth model. So, we look at it, it's about 1%, in some markets could be more, in some markets it could be a little bit less, but we find that when people move over to us, that generally they stay with us, and we've kind of triangulated on that with supplier information and how the suppliers are doing, and we know, you know, for those same products, how we're doing, and it is apparent, very apparent to us that the share gains that we got all through the pandemic, you know, for the most part, you know, we've maintained.

Peter D. Arvan: A fair price when we buy businesses, we bought a lot of businesses over the years, we continue to do acquisitions, but I wouldn't look for us to say.

Peter D. Arvan: Now, we're going to go out and do acquisitions at any cost because frankly, we don't we don't have to and that would probably be dilutive to the company. If we went out made lousy deal. So we look at we look at deals.

Peter D. Arvan: If we can if it's a good strategic fit for us if.

Peter D. Arvan: If we believe that there was a good cultural fit then we certainly have more than enough dry powder to go out and execute really any deal that would potentially exist in our industry.

Peter D. Arvan: And I'm, just going to add to that the one and a half to two times is our really our conservative philosophy, but we have up to three and a quarter under our debt arrangement. So we consider that we have substantial capacity.

Speaker Change: Got it.

Speaker Change: Thanks for the color.

Speaker Change: Call leave it there thanks, Pete Thanks Molly.

Peter D. Arvan: Thanks.

Peter D. Arvan: And we continue to gain share, you know, through today. So, you know, in any given market, might we give back a customer here and there? We might, but we try like hell to get that customer back, but by and large, you know, we think it's part of our long-term growth algorithm, and it's in the 1% range. Great, thank you for that. The next question comes from David MacGregor with Longbow Research. Please go ahead.

Peter D. Arvan: The next question comes from Steve Volkmann with Jefferies. Please go ahead.

David Sutherland MacGregor: Great. Good morning folks. Thanks for fitting me in most of my questions have been answered, but Pete I'm curious are you hearing anything or drawing any conclusions around kind of the average.

David Sutherland MacGregor: Cost of a pool build project or a pool remodel contract project do you think that's changed much.

David Sutherland MacGregor: You don't it's interesting it's actually a very good question, because we've seen the price of the pool escalate.

David Sutherland MacGregor: This is a good morning. Thanks for taking my questions. I guess I just wanted to look at the balance sheet for a moment. You're at 1.4 times debt to you. But I think earlier to a question on consolidation amongst dealers, you offered some color.

David Sutherland MacGregor: To all time highs.

David Sutherland MacGregor: And then at a certain point you that matriculate through to the size of market because at a certain point just because of the monthly payment for those pools that are financed and the elevated rates.

Peter D. Arvan: I guess I'm thinking about consolidation that may ultimately unfold amongst some of your competitors and some of the distributors. I'm just wondering how far you'd be prepared to take the balance sheet in terms of leverage if... on a larger scale. Yeah, I mean, I would tell you that we're always very mindful of the balance sheet and making sure that we are responsible allocators of capital. When we look at acquisitions, we look for a strategic fit, and we also look for a cultural fit. And then we also look for an economic equation that makes sense.

Peter D. Arvan: It can close out it can closeout some customers and what we've seen is that some of our builders.

Peter D. Arvan: Just steady as they go because they've got.

Peter D. Arvan: A good book of business and they build high end tools and they are very happy to continue to do that we have other builders that are trying to figure out how they can lower their ASP.

Peter D. Arvan: Bye.

Peter D. Arvan: To make sure that they can perhaps bring more people into the market. So I think overall I wouldn't look for any any major change, but some dealers have told us that whereas our backyard project was hey, I'd like to do extensive decking around the pool I want a pool with all these bells and whistles on it and I wanted to outdoor.

Peter D. Arvan: So the good news about Pool Corp is that we have a tremendously strong balance sheet. And we also have a very strong leadership team, both of which are required not only to execute an acquisition but to execute and integrate an acquisition and realize the savings. But with that very talented management team and a very strong balance sheet, it also gives us the ability to look at deals and say, you know, if they make sense financially, then we will do them.

Peter D. Arvan: Kitchen and there there are there is.

Peter D. Arvan: It may be bigger than their check book and then the dealer sit down with them and say, okay, but let's we can do this but let's make it.

Peter D. Arvan: But if not, you know, we also have the ability and, frankly, a superior value proposition in almost all cases to say, if we need additional capacity, that we can do it from a greenfield perspective. So we are, and have always been, very disciplined allocators of capital. We pay a fair price when we buy businesses.

Peter D. Arvan: Break it up into chunks, so let's decide on the size of the pool and.

Peter D. Arvan: We've bought a lot of businesses over the years. We continue to do acquisitions. But I wouldn't look for us to say, well, you know, we're going to go out and do acquisitions at any cost, because, frankly, we don't have to.

Peter D. Arvan: And that would probably be misleading to the company if we went out and made lousy deals. So we look at deals. If we can, if it's a good strategic fit for us, if we believe that there is a good cultural fit, then we certainly have more than enough dry powder to go out and execute really any deal that would potentially exist in our industry. And I'm going to add to that. So the one and a half to two times is really our conservative philosophy, but we have up to three and a quarter times that amount under our debtor rank.

Melanie M. Housey Hart: So, you know, we consider that we have substantial capacity. Thanks for the call. I'll leave it there.

Stephen Edward Volkmann: Thanks, Pete. Thanks, Melanie. Thank you. The next question comes from Steve Volkmann with Jeffries. Please go ahead. Great, good morning, folks. Thanks for fitting me in.

Melanie M. Housey Hart: Like automation and robotic cleaners, and such robotic cleaners are still outselling the.

Stephen Edward Volkmann: Pressure infection, which is much older technology, even though they are more expensive they are out selling them handily and when people are buying pools.

Peter D. Arvan: Most of my questions have been answered, but Pete, I'm curious, are you hearing anything or drawing any conclusions around kind of the average cost of a pool build project or a pool remodel contract project? Do you think that's changed much? You know, it's interesting. It's actually a very good question, because we've seen the price of a pool escalate to all-time highs.

Pete: <unk> and upgrading theyre not really opting for I'll go back to a time clock, they're still they're still going with automation, but it may be in more entry level of automation. So it's a good. It's a good question I think what you see is our dealers working within the environment to try and be as inclusive as they can with as many customers.

Peter D. Arvan: And then at a certain point, you know, that matriculates through to the size of the market because at a certain point, just because of the monthly payment for those pools that are financed and the elevated rates, it can close out some customers. And what we've seen is that some of our builders are just, you know, steady as they go because they've got, you know, a good book of business and they build high-end pools, and they're very happy to continue to do that.

Speaker Change: Got it okay interesting color.

Speaker Change: And then maybe just real quick for Melanie.

Peter D. Arvan: If we're having this conversation in three months and we haven't seen.

Peter D. Arvan: Some sense of recovery or reasonable volumes on Newbuild and retrofit how does that impact your gross margin for the second quarter.

Peter D. Arvan: We have other builders that are trying to figure out how they can lower their ASP to make sure that they can perhaps bring more people into the market. So, I think, overall, I wouldn't look for any major change, but, you know, some dealers have told us that whereas a backyard project was, hey, I'd like to do extensive decking around the pool, I want a pool with all these bells and whistles on it, and I want an outdoor kitchen, and their, you know, their eyes may be bigger than their checkbook, and then the dealers sit down with them and say, okay, but let's, we can do this, but let's make, let's break it up into chunks.

Peter D. Arvan: Yeah. So gross margin for the second quarter, if we continue to see lesser mix on building materials that would be I would say an added component on top of the normalization of inventory that you would see as the decrease in year over year comparative margin.

Speaker Change: Perfect. Thank you guys.

Peter D. Arvan: I think they are probably just at times and I think we have opportunity for one last question.

Peter D. Arvan: All right. Our last question comes from Andrew Carter with Stifel. Please go ahead.

Speaker Change: Hey, Thanks. Good morning first question I wanted to ask just to make absolutely sure. The weather component that you said for the year that you outlined as a negative was that a net negative from last year in isolation I think last year was 60 and forgive me, but this year I think was a minus two so therefore, a net two year headwind of 80 or what.

Peter D. Arvan: So, let's decide on the size of the pool and what features have to be buried in the cement, so to speak, and we'll put those in, and although you might like a 1,500 square foot deck around your pool, if it doesn't fit in the budget today, we can build a pool with a very small deck, it would be like the pools that were built 20 years ago with just coping and grass, and then we can come back later and add the, add the decking, and we can come back later and add an outdoor kitchen.

Peter D. Arvan: Is it just those select markets and then with the guidance coming in just to be clear coming in lower at the top end of revenue guidance, that's the not an expectations of weather favorability.

Peter D. Arvan: Yeah.

Peter D. Arvan: The guide for the year I'm, just kind of slightly positive would not include the weather recovery as we had mentioned.

Peter D. Arvan: So, you know, if you're a more price-sensitive builder, then those folks are working to make sure that they do whatever they can to bring that price down. Now, having said that, you understand that the average is made up of pools that are, you know, a million dollars and entry-level pools. So, every pool tends to be more expensive, but I think our dealers are trying to be more creative when it comes to bringing as many people into the market as they can.

Peter D. Arvan: And one more question to ask here in terms of kind of the new branches in acquisitions I know that the base business was kind of right in line with overall sales, but I think over the past 15 months, which I believe is what you exclude from base business you've added about 5.5% branches is the contribution.

Peter D. Arvan: The good news is that when it comes to some of the features we've been talking about, like automation and robotic cleaners and such, robotic cleaners are still outselling pressure and suction, which are much older technologies.

Peter D. Arvan: Lower than what you your expectations would be perhaps maybe this is super cycle cycle dynamics and of course at the Investor Day, you reiterated two things the payback period as well as kind of the bottom kind of they are the margin go bottom to your 10% or target, so but has anything changed to where.

Peter D. Arvan: Even though they're more expensive, they're outselling them handily. And when people are buying pools and upgrading, they're not really opting for, I'll go back to a time clock, you know; they're still going with automation, but it may be a lower level of automation. So it's a good question. I think what you see is our dealers working within the environment to try and be as inclusive as they can with as many customers. Got it. Okay, interesting color.

Peter D. Arvan: Just the new branches or just an expense of competing in the category versus being as accretive to revenue. Thanks.

Stephen Edward Volkmann: And then maybe just real quick for Melanie, if we're having this conversation in three months, and we haven't seen, you know, some sense of recovery or, you know, reasonable volumes on new build and retrofit, how does that impact your gross margin for the second quarter? Yeah, so gross margin for the second quarter, if we continue to see, you know, a lesser mix of building materials, that would be, I would say, an added component on top of the normalization in inventory that you would see as a decrease in year-over-year comparative margins. Perfect. Thank you, guys. I think we're probably just at time, so maybe we have an opportunity for one last question. All right. Our last question comes from Andrew Carter with Stiefel. Please go ahead.

Peter D. Arvan: Andrew what I would tell you is that when we open up new branches as we mentioned during Investor day, we.

Andrew Carter: We always do a five year pro forma.

Andrew Carter: Have to be very comfortable with the reason and the rationale for US opening the branch and the quality of the of the pro forma.

Stephen Edward Volkmann: Certainly if you look at if you look at the branches and their ramp in a market that is more challenged from a new construction basis.

Andrew Carter: They would be impacted perhaps the slower growth, but many of the branches that we open are really not.

Andrew Carter: For new construction, there could be much more maintenance type of maintenance and those tend to perform well. So overall when I look at.

Andrew Carter: Hey, thanks. Good morning. First question I wanted to ask, just to make absolutely sure that the weather component that you said for the year that you outlined is a negative. Was that a net negative from last year in isolation, i.e. I think last year was 60, and forgive me, but this year, I think it was minus 2, so therefore a net two-year headwind of 80. Or was it just those select markets? And then with the guidance coming in, just to be clear, coming in lower at the top end of revenue guidance, that's not the expectation of weather favorability, and it's the maintenance units coming down. Is that chemicals and equipment both, or just one of those?

Andrew Carter: When I look at the performance of the class really nothing is nothing is warming.

Andrew Carter: Pretty happy with the results on the on the Greenfields, especially given the number of Greenfields that we've done but that really is a testament to the city.

Andrew Carter: To the experience of the management team so.

Andrew Carter: These folks when we get them or we're going to open new branches theyre not new folks, they're not trying to figure things out there very disciplined we have.

Melanie M. Housey Hart: Thanks. So the guide for the year, just kind of slightly positive, would not include weather recovery, as we had mentioned. And then for the first quarter, we did see positive impacts in the quarter for normalized weather in California. You'll note in Pete's comments that California outperformed the rest of our big four markets. But where we saw weather for this year in the first quarter was primarily in Florida, where for the quarter, the proportion of those Florida sales was the highest of those big four states.

Melanie M. Housey Hart: This concludes our question and answer session I would like to turn the conference back over to Peter Arvin, President and CEO for any closing remarks.

Andrew Carter: So it had a larger impact as it relates to that. There is one more question to ask here. In terms of the kind of new branches and acquisitions, I know that the base business was kind of right in line with overall sales. But I think over the past 15 months, which I believe is what you exclude from the base business, you've added about 5.5% of branches. Is the contribution lower than what your expectations would be? Perhaps, maybe this is super cycle dynamics.

Andrew Carter: Okay.

Andrew Carter: [music].

Peter D. Arvan: And of course, at investor day, you reiterated two things, the payback period as well as kind of the bottom tier, 10% or target. But has anything changed to where just the new branches are just an expense of competing in the category versus being as accretive to revenue? Thanks. Andrew, what I would tell you is that when we open up new branches, as we mentioned during Investor Day, we always do a five-year pro forma, and we have to be very comfortable with the reason and the rationale for us opening the branch and the quality of the pro forma.

Peter D. Arvan:

Peter D. Arvan: Yeah.

Peter D. Arvan: [music].

Peter D. Arvan: Certainly, if you look at the branches and their ramp in a market that is more challenged from a new construction basis, they would be impacted and perhaps see slower growth, but many of the branches that we open are really not for new construction. There could be much more maintenance, tied to maintenance, and those tend to perform well.

Peter D. Arvan: So overall, when I look at the performance of the class, really nothing is alarming. I'm actually pretty happy with the results of the greenfields, especially given the number of greenfields that we've done, but that's a testament to the experience of the management team. So these folks, when they open new branches, they're not new people. They're not trying to figure things out.

Peter D. Arvan: They're very disciplined. We have a quality management team. We generally see new locations with talent that's ready to be promoted from the existing network. So our ability to leverage the performance of those new branches is still pretty good.

Peter D. Arvan: So overall, I'm happy. Thanks. I'll pass on.

Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Peter Arvan, President and CEO, for any closing remarks. Yes, thank you all for joining us today. We look forward to our next call, which will be July 25th. Mark your calendars for July 25th when we release our second quarter 2024 results. Have a wonderful day. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??